The Great Depression and the New Deal

After the gradual destruction of the conventional, Galbraithian view of what caused the Great Depression by Friedman, Bernanke, Sirkin and a host of other great twentieth century economists the right wing bandwagon is now moving on to what fixed it. In particular the New Deal is taking a hammering. Marginal Revolution has some great coverage. First, Alex Tabarrok:

"Imagine, increasing the power of unions to strike and raise wages during a time of mass strikes and mass unemployment. Imagine thinking that cartelizing whole industries thereby raising prices and reducing output could improve the economy. Not everything Roosevelt did was counterproductive - he did end prohibition (although in order to raise taxes) - but plenty was and worst of all was the uncertainty created by Roosevelt's vicious attacks on business."

The causes of the Great Depression are something I have studied at some length and it becomes increasingly clear the idea it was a matter of wildly irrational markets getting their comeuppance is increasingly hard to sustain. While I have not read into as much of the detail of the arguments surrounding the New Deal I think that people are right to be suspicious that policies which are so disastrous elsewhere worked so well in the thirties. I think that as the event was so traumatic and remains so iconic the conventional wisdom surrounding it can be an intimidating target for academic challenge.

Bryan Caplan puts an argument similar to Tabarrok's in rather robust terms by describing FDR as a much milder Mugabe in terms of economic policy. He defends his comparison like this:

"Think about it this way: Out of all the presidents the U.S. has ever had, which one had the scariest rhetoric and policies from the point of view of investors and the rich? As far as I can tell, Franklin Roosevelt is clearly at the top of the list by a wide margin. Who else is even in the running? Cousin Teddy? He was a lot more balanced, and the country wasn't in a crisis."

The comparison is overblown but does make the point that scaring the rich may be popular but has awful effects on the economy by taking capital out of active use; whether in Zimbabwe or the United States.

It's an interesting discussion. The debate on the causes of and solution to the depression started in 1929 and I expect it'll still be going strong for some time to come.